Wednesday, December 19, 2012

Financing Deal of the Year Nominee: Rusnano/Domain and CoDa Therapeutics

It's time for the IN VIVO Blog's Fifth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

How about voting for a deal that turns conventional wisdom on its head.

The biopharma industry has looked to emerging markets for near-term revenues and cost efficiencies, but not for scientific or commercial innovation. An umbrella deal between Rusnano, a five-year-old $10 billion Russian sovereign fund, and the US venture capital firm Domain Associates, announced in March, and a subsequent tie up with Domain portfolio company CoDa Therapeutics, goes some way toward erasing those misperceptions. At the same time, the partners’ tie up reflects sovereign funds’ increasingly important role in shaping the life sciences industry.

And it does so in such a creative, enticing way that Russia, not typically known as a life sciences innovator, is generating excitement among US VCs and biopharma companies. Rusnano is linked to Russia’s Pharma 2020 program, which is already impacting Big Pharma’s development decisions, as indicated by their deal-making activities in the country. At the same time, Domain’s commitment to the joint effort has also been intense, but the relationship is worth the effort because it’s potentially so lucrative, according to Domain partner Brian Dovey.

The size and structure of the partners’ deals are noteworthy: Rusnano, which has a mandate to broadly invest in nanotechnology around the globe, and Domain, the quintessential US VC, are investing up to $330 million each in Domain’s portfolio life sciences companies and up to $190 million to build a manufacturing facility in Russia for the products that would be sold in Eastern Europe out of the Domain companies.

The aim is to “spur modernization of the Russian healthcare market” by providing that country, along with Eastern Europe and the former Soviet Commonwealth of Independent States, with next-generation pharmaceuticals, medical devices and diagnostic products, Rusnano executives said at the time of the announcement. Under the agreement, roughly 20 existing and potentially new US-based Domain portfolio companies will benefit from the collaboration, and the partners can also co-invest in third-party technology.

In July, after months of review, the partners announced their first beneficiary: Domain’s wound-healing biotech CoDa Therapeutics. The San Diego-based company is licensing rights to its technology in Russia and the CIS to the new Domain/Rusnano-backed Russian pharma company. In exchange, Domain, along with current CoDa investors GBS Ventures and BioPacificVentures, and new investor Rusnano, committed nearly $40 million to CoDa, closing a Series B financing that began in 2011.  The VC syndicate and Rusnano are each contributing equal amounts. CoDa, as with all Rusnano life sciences investments, has to establish R&D operations in Russia as well.

Domain isn’t the only US investor Rusnano is working with, nor is Rusnano the only tool the Russian government is working with to entice US venture capitalists and biotech entrepreneurs. It’s also established a business school and life sciences incubator, Skolkovo, in a collaboration with Massachusetts Institute of Technology, and has other stimulus programs aimed at building a biotech industry. But by bringing in US innovators and offering them the carrots they need most: attractive financing, potential market opportunities, and acknowledgement of American’s entrepreneurial savvy, Russia may be demonstrating a new model for building a much needed ecosystem.

--Wendy Diller

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